In 2009, Tim presented worse performance in its operational indicators. The company lost market share and the distance which separates Tim from Claro (in the second position) was amplified to 3.3 million mobile accesses, 1 million more than in 2008.

Thousands

2008

2009

Market Share

24.17%

23.63%

Net Adds

5,149

4,700

% Prepaid

82.0%

84.3%

ARPU (R$)

29.9

26.5

MOU (minutes)

95

83

Monthly churn

3.0%

3.5%

SAC (R$)

110

118

The operator considers 2009 as a year for "repositioning" to overtake the "difficulties" presented in 2008.

In fact, Tim's net adds were affected by the cleaning in its base of about 1 million mobile accesses promoted by the operator in Feb/09.

The operator reviewed its offers and, along the year, launched innovative and aggressive services such as "Infinity" (the client pays only the first minute of the call from Tim to Tim). 50% of Tim's prepaid base (17 million mobile accesses) joined this plan.

These initiatives helped to raised Tim's gross adds, but they weren't enough to increase net adds due to the growth of churn.

One of the causes to churn rise is the drop in service quality, resulted from the traffic growth. The minutes of use per client (MOU) increased from 70 in 1Q09 to 99 minutes in 4Q09.

This scenario forced Tim to concentrate their investments in increasing the capacity of the GSM network, postponing 3G investments, what was an obstacle to raise its post paid base.

despite the launching of service plan with unlimited minutes to calls from Tim' cell phone to Tim' cell phone like Liberty, in 2009 the operator didn't recover in post paid, closing the year with 6,452 thousands post paid mobile accesses, less than number registered in 2008 (6,571 thousands)

Low growth, associated with the reduction in post paid and ARPU drop, affected Tim's revenue in 2009 (variation of -1.3%). Value Added Services was the only segment, in the revenue, in which Tim grew positively in 2009 (19.2%).

R$ millions

2008

2009

Gross Revenue

18,321

18,079

-1.3%

Net revenue

13,147

13,058

-0.7%

EBITDA

2,899

3,063

5.6%

EBITDA Margin

22.1%

23.5%

-

EBIT

491

490

-0,3%

EBIT Margin

3.7%

3.8%

-

Net Profit

180

232

28.6%

Investments

2,032**

2,149

10.3%

Net Debt

1,670

1,684

-

The positive result conquered by Tim in 2009 was the improvement in its profitability. The operator promoted the reduction in the number of employees (of 1,067 people) and decreased bad debts, reaching the improvement in its EBITDA margin and growth of 28.6% in profit.

These results may have been sufficient to satisfy Telecom Italia, which faces a difficult situation in its home market. In 2009 the company presented drop of 6.8% in its revenue in Italy, 2% in EBITDA, 7.2% in fixed accesses and 11% in mobile accesses (cell phones).

Telecom Itália's debt is still high (34 million Euros) and the operator is now dealing with a scandal involving its subsidiary Sparkle which operates internationally. Tim Brazil is Telecom Itália's bet to promote the growth of the group avoiding so a merger with Telefonica.

Tim faces great challenges in 2010:

Resume growth in the same pace of competitors increasing net adds by churn reduction.

Increase its post paid base improving the service quality and investing in 3G.

Improve its profitability increasing the EBITDA margin and profit. Vivo, for example, presented EBITDA margin of 31.9% and net profit of R$ 858 million in 2009.

To accomplish to that Tim relies on Intelig's, which was incorporated in Dec/09, support. The operator plans to use Intelig's network to develop its own infrastructure for the 3G network with optical rings in big cities.

In Jan/10, Tim's performance was the same as presented over the last months of 2009. Tim's net adds were lower than the net adds presented by Vivo and Claro. In February, however, Tim launched aggressive promotions which can make the difference.

You could ask:

Will Tim lead mobile growth in Brazil in 2010?

Will Tim reduce its churn in 2010?

Will Telecom Itália resume the discussions about Tim Brazil sale in 2010? Which would be the candidates?